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Archive 2009

  • 12.11.2009

    Exporting electricity to the EU - more than switching frequencies

    (Code:PP_07_2009)

    The Ukrainian electricity sector features remarkably high nominal reserve margins. Its electricity generation capacities exceed the peak load by more than 40%. The crisis driven dip in electricity demand is further deteriorating the load factors of the Ukrainian power plant fleet. While increasing exports to Eastern neighbours is not economic at prices of about 40 USD/MWh, expanding the sales to EU countries that pay about 60 USD/MWh is technically limited. But, currently different options to alleviate these bottlenecks are discussed. In addition to technical issues also legal barriers to increase Ukraine's electricity exports might exist. Especially a requirement to comply with European electricity sector standards might discourage exports. In this paper we therefore analyse how the implementation of the EU emission trading scheme influences the profitability Ukrainian electricity exports.

    Evaluating the Ukrainian power plant fleet we find that a large fraction of Ukraine's thermal power plant capacities are not actually available. Based on an estimation of the marginal cost curve of the Ukrainian electricity generation sector we conclude that the profitability of Ukrainian electricity exports depends on their treatment under the EU emission trading scheme (EU ETS). If Ukraine remains exempt from the EU ETS and under the assumption of moderate fuel prices, annual profits of USD 416 m could be generated by exporting a 2,500 MW baseload band (i.e., 22 TWh) to the EU. If, however, the EU does not accept an increase of imports from Ukraine unless this country introduces a moderate 20 USD/t carbon tax, exporting Ukrainian electricity to the EU will be loss making. Consequently, the profitability of Ukrainian electricity in Western Europe depends on the requirements imposed for compliance with Western standards. We believe that the European electricity industry and politics would veto massive imports of electricity not generated under the costly European regime. Thus, a long-term electricity export strategy should be developed, that not only takes the necessary investment in network extensions into account but also considers reductions in greenhouse-gas emission and compliance with EU pollution standards.

    Contents

    1. Introduction
    2. Surplus generation in Ukraine
    3. Economic Export Potential
    4. Conclusion
    5. References

    Authors:  Naumenko Dmytro, Захманн Георг
    Research spheres:  Infrastructure, Real sector
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